4. Mr Mark LEE presented the salient points of ATV's submission. He commented that the Administration's policy was unfair to terrestrial television (TV) service providers, who were required to pay a royalty. The difference in treatment between terrestrial TV operators and other TV operators would inevitably force the former to reduce their investment and eventually affect the interest of end-users. In reply to members, he stated that continued reduction of viewership over the past few years was as forecasted by KPMG. As a consequence of the reduction in viewership, the loss in advertising revenue during the period from 1995 to 2000 was estimated to be around $400 million to $800 million. He stated that ATV did not object to an open TV market. However, the interests of terrestrial TV operators should be taken into consideration.

5. Mr Alex YING presented the submission of TVB. In reply to a member's question, he explained that the 1994 KPMG report forecasted a progressive drop in the combined viewership of ATV and TVB of 14% in the period 1995 to 2000. With regard to TV royalty in other countries, he pointed out that there was no TV royalty in the United States, while those in Singapore and Thailand were 2.5 % and 6 % respectively. TVB was basically in support of an open TV market.

6. Mr Alex YING pointed out that the development of new digital compression technology had made it possible for better utilisation of atmospheric radio wave and thus more channels could be allowed. He opined that the utilisation of atmospheric radio wave should be charged on consumption basis and not tied to royalty. The Administration should introduce incentives to encourage the adoption of new technology that would better utilise atmospheric radio wave. He added that while there was a schedule of royalty which varied according to revenue, a royalty below 10% was only applicable to low revenue levels at which a terrestrial TV operator could not survive.

7. Mr Stephen NG outlined the submission of Wharf Cable, which supported the Government's policy that the pace of deregulation should be controlled. It believed that Government should proceed with current proposals for the pay TV and VOD markets but should plan to conduct a comprehensive review of the television broadcast industry and the convergent television and telecommunications markets with the declared intention of introducing a comprehensive Broadcasting Bill by no later than June 1998. In promoting the development of TV industry, the interest of the local TV industry should not be sacrificed.

8. Dr William LO highlighted the main points of HKTIMS's submission. He stated that Video-on-Demand (VOD) service was similar to the service provided by a video rental store and should be regulated under the Control of Obscene and Indescent Articles Ordinance. It was inappropriate to regulate VOD under the Television Ordinance and to apply the code of practice for pay TV to VOD. He stated that HKTIMS supported the open market approach for pay TV and VOD services.

9. Mr Ting CHAN conveyed Hutchison's support for deregulation of the broadcasting industry and an open market. He echoed the view that the service provided through VOD service was analogous to the service provided by a video store.

10. Ms Carman CHIU stated that NWT was opposed to restricting the number of VOD licences. Potential licensees that meet the designated investment, technical and operational criteria should be encouraged to build infrastructure or expand their services. Hong Kong should move away from reliance on a single source of supply for VOD. Equal opportunity should be given to all the Fixed Telecommunication Network Services licences in the provision of VOD service. The dominant operators' influence on the market should be balanced by encouraging new operators to build modern infrastructure to support VOD and other broadband services. NWT urged the Administration to open up the VOD market.

11. Miss Jannie POON presented the submission of STAR TV and commented that the decision on whether to open up pay TV market should be based on public interest. She pointed out that a survey by STAR TV on HK viewers' propensity to subscribe to other pay TV services revealed a demand for new pay TV service. The number of pay TV service providers should be determined by the free market mechanism. The restriction on pay TV service provision would only hinder the development of satellite TV.

12. On the question of whether the existing royalty system on terrestrial TV was still appropriate with the increasing number of TV channels from four to forty, Mrs Rita LAU stated that as terrestrial TV licensees were given the privilege of using atmospheric radio wave, which was a limited public resource, it was reasonable that the community should receive a fair share of the financial benefits arising from restricted competition. She explained that royalties were charged in accordance with an approved scale which was last reviewed in 1994, as a result of which the maximum royalty rate was reduced from 12% to 10%. Nevertheless, the Government would carefully consider the views received in the consultation exercise before arriving at a decision.

Different codes of practice were necessary to reflect the nature of the TV service. There was no question of Government favouring any particular company.

Conditions similar to those which applied to pay TV would be imposed on TV programmes provided through VOD. Information services such as those currently available on the Internet would be excluded from the proposed regulation and no licences would be required.

On the question of programme contents, TV licensees had to comply with Codes of Practice issued by the Broadcasting Authority in the materials they broadcast. It was therefore quite common for them to edit a film before broadcast although the same film was also available in the form of a video tape. Under the Government's proposed regulatory framework for VOD, films transmitted by VOD would be subject to Codes of Practice similar to those which applied to pay TV.

With regard to the eligibility of companies transmitting sound or television programmes including Fixed Telecommunications Network Service licensees, the consultation paper had proposed that the Governor in Council be invited to exercise discretion and grant exemptions where necessary.

The regulatory framework for VOD programme services would be reviewed in 1998 in the context of an overall review of television broadcasting.

14. With regard to the development of TV professionals, Mrs Rita LAU stated that apart from TV production courses organised by the Hong Kong Academy for Performing Arts, most TV licensees had training courses of their own and quite a number of accomplished and renowned talents had such training background.

15. As regards the policy formulation process, Mrs Rita LAU explained that the Recreation and Culture Branch (RCB) would carefully consider all the views received in the consultation exercise and took them into account in deciding the policy recommendations for endorsement by the ExCo, after which a report would be made to the Panel. Members were generally of the view that the policy to be drawn up by RCB should be presented to LegCo for consideration before submission to ExCo.

16. Mr Albert CHAN opined that the Administration was inconsistent in proposing the issue of two VOD licences while not issuing further pay TV licence. He added that the Administration's licensing system was generally opposed by the industry.

17. Mr Andrew CHENG was of the view that the development of TV industry should not be hindered by unfair competition. Mr SIN Chung-kai added that the Administration should let the free market mechanism to determine the number of licences.

18. Mr Howard YOUNG commented that the Administration was inconsistent in proposing to restrict the number of VOD licences while proposing to issue six more mobile phone licences. He stated that VOD and pay TV should be treated separately as there was a general view in the industry that the VOD market should be opened, while in respect of pay TV, there were concerns that the local TV industry should be protected.

19. Mrs Selina CHOW shared the deputations' views for protection of local TV industry. She added that the Administration should review its policy on royalty. The Administration should encourage investment and development of TV professionals to maintain the competitiveness of the local industry. She reserved her position on fully opening up the pay TV market and stated that most parts of the world had only one cable TV. Whilst not objecting to the general principle of deregulation, she did not agree to a position whereby opposing the Government's proposal to make a final decision on pay TV in 1998.

20. The Deputy Chairman stated that if the Administration insisted on maintaining the existing scale of royalties, it should consider increasing the number of channels for the existing terrestrial TV operators.

21. In summary, the majority of members present generally supported the views of the deputations and agreed to write to the Administration urging it :

to open up the pay TV and VOD markets;

to review the existing policy on levying royalty on terrestrial TV operators; and

to promote the development of local TV industry

22. It was agreed that the letter to the Administration would be circulated to Panel members for comments.

23. The meeting noted the information papers prepared by the Administration on the enforcement of the COIAO, which involved the joint effort of the Television and Entertainment Licensing Authority (TELA), the Royal Hong Kong Police Force (RHKPF), and the Customs and Excise Department (CED).

24. Mrs Selina CHOW urged the Administration to take more active and prompt action on the control of pornographic CD-ROMs. She stated that the penalty for selling pornographic CD-ROMs and the statutory power of TELA inspectors should both be increased. The RCB should take the lead in addressing the issue with the RHKPF and CED. Mr Andrew CHENG shared the same view and commented that a comprehensive review should be carried out on the resource provision for and statutory power of TELA.

25. Members requested the Administration for a paper to address the issues raised. It was agreed that the subject should be discussed again at a future meeting of the Panel with all the relevant departments of the Administration.